Egypt Turmoil Threatens U.S. Economy

Middle East Turmoil Threatens U.S. Recovery

“270,000”

-- The forecast for U.S. job losses in the next year from IHS Global Insight if oil prices increase by only $11 a barrel as a result of the Mideast crisis

Rising prices for food and fuel helped drive the uprisings racking the Middle East, now those uprisings are pushing prices higher still and threatening America’s economic recovery.

Prices had been on the rise for months around the world as increased demand following a long recession – especially driven by economic booms in China and India – squeezed available resources.

Massive increases in the cost of staples like flour and cooking fuel helped stoke popular anger in the poor countries in the Middle East and could do the same elsewhere. Note well that the ChiComs are heavily censoring the news on the Arab uprising lest their inflation-strained subjects get any funny ideas.

In the U.S., increased competition and rising domestic demand augmented by a regulatory crackdown on the energy sector – particularly oil and coal -- has driven a still relatively modest increase in food and fuel prices. Enough to be a small drag on recovery, but not stifle it.

In Europe, though, inflation is already sinking in its fangs.

Central bankers and heads of state are preparing to jack up interest rates and tighten monetary supplies in an effort to prevent runaway inflation. When President Obama asked his fellow leaders to keep pushing stimulus, as he is here, they refused, largely on the grounds they feared inflation.

Here, the Federal Reserve has been gushing cheap dollars into the economy for three years and the Obama Democrats have ramped up spending and borrowing to historic highs all in effort to stave off what they said would have been another Great Depression.

But now, economists fear that there will be too many dollars chasing too few goods and that a serious inflationary cycle could begin. As those who endured the 1970s will attest, once begun, an inflationary cycle is hard to shake. Every bit of growth is gobbled up by inflation, and people lose ground in their personal finances.

Fed Chairman Ben Bernanke and Obama have promised that they can switch from stimulus to inflation control at precisely the right moment. But turmoil in the Middle East could trump their abilities to make the transition.

If oil prices shoot up because of concerns over access to the Suez Canal or instability inside significant petroleum producers in the region, it could kick start inflation here. High gas prices push other prices up and with bushels of cheap dollars available, there is little check on costs rising faster than stagnant wages can match.

Inflation stalls recoveries, but so do the steps necessary to prevent inflation – like tightening monetary policy and raising interest rates.

Our stimulus bubble is pretty big, and while Obama and Bernanke promise to let the air out in an orderly fashion, problems abroad could pop it instead.

Mubarak Out of Options

“There are more pro-Islamic, anti-Israel -- I would say maybe even maybe anti-U.S. – forces than pure democrats, as the way we understand it.”

-- Former Secretary of State Henry Kissinger “On the Record with Greta Van Susteren” discussing the leaders of the Egyptian uprising

Today may see the end of the 30-year reign of Egyptian President Hosni Mubarak, the picture of a troublesome U.S. ally. He has been a stalwart friend in an unstable region, helped protect Israel, all while operating a police state that violates basic American principles of freedom.

Just as the Egyptian military in 1981 installed Mubarak, the former commander of the nation’s air force, now the military will uninstall him. But to be replaced with whom?

The military has given license to a one million-person protest march in Cairo today, praising the “great people of Egypt” and promising to leave them unharmed. By encouraging and protecting this massive demonstration, the message from the military to Mubarak: time to go.

Mubarak has responded by offering to open up talks with opposition leaders, offering up his new vice president, formerly the head of his much-hated intelligence service, for parley.

This is a tacit admission by Mubarak that he will not endure the current crisis and is looking to negotiate the terms of his departure.

The military has picked the leaders of Egypt since the 1952 revolution that toppled the Ali Pasha dynasty that had ruled for 150 years. Of course Ali Pasha was himself a general who took power and during the preceding 1,800 years that Egypt was a province of a larger empire, the local military commander usually led the nation. So you can say that Egypt has been under military rule since Julius Caesar.

But in the modern era, Egypt has had three presidents, Gamal Nasser, Anwar Sadat and Mubarak, who all rose from the military ranks. Mubarak is by far the longest serving. Nasser died of a heart attack in 1970, Sadat was killed by Islamists in 1981 and Mubarak has reigned ever since.

What’s challenging here is that Mubarak has lived so long.

The military did not much like Mubarak’s elevation of his police and intelligence services in recent years and will likely be unimpressed by the offering of the state spymaster as successor.

The general corps no doubt has some options in mind for the successor -- perhaps just-ousted field marshal of the nation’s million-man army, 74-year-old Mohamed Hussein Tantawi.

After Sadat’s assassination, power was temporarily shifted to the head of the Egyptian parliament while Mubarak’s installation could be arranged. If the sight of a million marchers flanked by tanks and columns of troops is enough to get Mubarak to bow out and retire to Europe to count his purloined millions, a similar transitional arrangement might be made.

Mubarak’s police may be cruel, but they are vastly outnumbered. And there is now a special U.S. envoy on the ground, former Ambassador Frank Wisner, with a message for Mubarak. An old friend to Mubarak, Wisner will likely be there to help him think through his exit strategy.

If the elections, currently slated for September, can be moved up to a date soon enough to satisfy protestors but far enough away to let passions subside and let the military consolidate power – say, May – power could temporarily shift to some functionary with the blessing of the generals. Then, a suitable replacement can be offered up by the country’s ruling party and confirmed by a vote.

This is likely the best case scenario for the U.S. as it promises the greatest degree of stability and least chance for plunging the cornerstone of the Arab world into chaos which might wreck the global economy and produce a new Islamist state bent on renewing war with Israel.

Obama Vision for Egypt Includes Muslim Brotherhood

“…the Muslim Brotherhood is part of the fabric of Egyptian society."

-- A U.S. official talking to the Wall Street Journal about Obama administration efforts to encourage the formation of a new ruling coalition in Egypt

Mohammed ElBaradei, the former U.N. official who thwarted U.S. attempts to end Iran’s nuclear program, is trying to form a coalition with the Muslim Brotherhood, an Islamist group that wants to turn Egypt into a theocracy.

ElBaradei is also praising the forbearance of the military for not squashing the protests. But he also envisions civilian control of the military and free elections, something the generals are not likely to find too groovy.

While the military, the Muslims, the secularist reformers and ElBaradei all agree that it’s time for Mubarak to go, they will likely be very much at odds over how to replace him.

The military is not keen on the idea of losing control to the Islamists, which is what a snap election might bring. If ElBaradei were to take power with the help of the Muslim Brotherhood, one can see that the Islamists would soon take power from ElBaradei. They might appreciate his longtime support for Iran’s nuclear program, but that won’t protect him once things get going.

Just as Hezbollah has shown in Lebanon, a coalition government that includes Islamists can quickly become an Islamist government. It is not a movement that leaves much room for compromise. To make an inexact analogy, the Muslim Brotherhood would be like Sinn Fein in Ireland, while Al Qaeda is like the IRA. They pursue the same goals, one politically, the other through terrorism.

Reports today suggest that the Obama White House is looking for friends in the ElBaradei/Islamist coalition. Strategic leaks from the administration point to ongoing talks and encouragement of ElBaradei. Having taken a deliberately lighter touch on Mubarak’s abuses of his people, the Obama administration seems to be looking to make the most of the current crisis to move Egypt into real democracy, rather than military-sanctioned semi-democracy.

That plan could include the encouragement of a coalition that includes Islamists.

But while the U.S. can provide intelligence and public encouragement to the ElBaradei/Islamist coalition, the military seems unlikely to step aside to let a coalition of student groups and Muslim hardliners led by a U.N. bureaucrat take control of the country.

If the army doesn’t get to call the shots, there’s a chance that real shooting will start. While we may find the idea of more than 300 dead in the protests and clashes so far shocking, by the rougher standards of the region and the size of the uprising, this looks like a Tea Party rally. That relative tranquility will not endure if the army sees a real threat from the imams.

Senate Ponders Obamacare Changes as Legal Challenges Mount

"Every person throughout the course of his or her life makes hundreds or even thousands of life decisions that involve the same general sort of thought process that the defendants maintain is 'economic activity.’ There will be no stopping point if that should be deemed the equivalent of activity for Commerce Clause purposes."

-- U.S. District Judge Roger Vinson striking down President Obama’s national health care law, which forbids any American from not buying health insurance or being enrolled in a government program

A judge’s ruling Monday was a vindication for those who argued the federal government did not have the right to punish citizens for refusing to engage in commerce.

The Constitution gives the feds broad power to regulate commerce, but conservatives argue that there is no allowance for the federal government to require people to engage in commerce, as President Obama’s national health care law does.

The Obama law says that as a condition of living in the United States, everyone must either buy private insurance or show that they are enrolled in a qualified government health program.

U.S. District Judge Roger Vinson took a hammer to that notion in his ruling, and said that the mandatory purchase of insurance was so central to the legislation that the entire law had to be struck down.

The appeals process will likely include a stay on Vinson’s order overturning the law and the case will wend its way to the Supreme Court some time before the middle of next year.

And while the administration is dismissing Vinson’s ruling as judicial activism that will be wiped away on appeal, members of Congress saw Tuesday what a conservative ruling from Chief Justice John Roberts’ Supreme Court might look like. It might not be just a partial defeat; it could be a total wipeout for the president’s law.

This realization will increase interest in the proposals knocking around in the Senate to strip the constitutionally controversial elements from the law.

The irony here for the left is that while the liberal preference for a government-run insurance program to provide universal coverage would be undoubtedly constitutional, Obama’s compromise of forcing private companies to cover everyone but then forcing everyone to buy private insurance is in serious doubt. Obama gave up on the so-called “public option” because he said it was politically infeasible, but his solution may be legally infeasible.

While a government plan might have passed when Democrats held both chambers, it’s off the table now.

Instead, Republicans and moderate Democrats in the Senate are engaged in a clammy courtship over dealing with the president’s mandatory insurance provisions. The danger for Obama’s law is that experts pro and con agree that without the power to compel people to buy insurance, the plan will collapse.

Even so, given the prospect of a legal loss and the total destruction of the law, moderate Dems may prefer to salvage something from the law – perhaps more liberal standards for existing government programs or some new regulation of the insurance industry.

The Senators to watch for signs of the start of a compromise would be Nebraska’s Ben Nelson, West Virginia’s Joe Manchin, Missouri’s Claire McCaskill, Connecticut’s Joe Lieberman, Virginia’s Jim Webb and Oregon’s Ron Wyden.

All 47 Republicans in the Senate have now signed on as co-sponsors of the House bill repealing the Obama law entirely. That’s not happening, but there could be 13 votes on the Democratic side for something that undoes the central provision of the law.

While President Obama is out talking about the need for government spending on green energy, his domestic agenda may increasingly be given over to defending his signature legislation.

From the 2012 Quote File

“He's got all this soaring rhetoric, but the fact of the matter is he's chicken to address the real issues."

-- Former Gov. Tim Pawlenty, R-Minn., on “FOX & Friends” discussing president Obama’s scant mentions of spending and entitlement cuts in his State of the Union address

And Now, A Word From Charles

“Look, everybody would like to have a democratic outcome, but you have to be a child to think that it is the inevitable outcome of this revolution. You have to be a wild-eyed optimist to say it's even the most likely outcome. People say the revolution is broad-based. Of course it is. So was the French and Russian and Iranian.”

-- Charles Krauthammer on “Special Report with Bret Baier” discussing the Egyptian uprising.